South American Real Estate News

Myths and Truths of Inequality in Chile: To What Extent this explains the outbursts shaking this advanced country

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The profound differences between the upper tiers and the rest of the population are presented as the unique cause of the phenomenal crisis that the country has been experiencing for the past three weeks. However, the statistics show a contradictory reality, which does not stand up to simplistic explanations.

After the deep economic reforms implemented during the dictatorship of Augusto Pinochet, and since deepened since the return of democracy in 1990, Chile became a paradigm. For free-market advocates, it was a role model. For left-wing socialist supporters, it became all that is wrong.

For many years, the country’s strong economic growth seemed to confirm the correct path was being taken. Now, the social outburst that makes one of the continent’s most established democracies rebound would suggest that the latter might also have some points.

The reality, however, is more of nuances and cannot be understood by absolute categories.

Manifestantes lanzan piedras durante una protesta contra el gobierno de Chile en Concepción, el 7 de noviembre de 2019 (REUTERS/Jose Luis Saavedra)
Demonstrators throw stones during a protest against Chile’s government in Concepción on November 7, 2019 (REUTERS/Jose Luis Saavedra)

Inequality in Chile and Latin America

The facts, repeated to exhaustion, is, therefore, no less true: Latin America is the most unequal region in the world. It is true that it is not the poorest, but it is where the greatest distances between those who have more and those who have less.

Therefore, it should not be a surprise that Chile is among the most unequal countries on the planet. Contrary to what is believed, however, it is far from the most inequitable country in the region.

If the Gini index, which estimates the distribution of income with a coefficient ranging from 0 – absolute equality – to 1 — absolute inequality — is taken as a reference, inequity in Chile is 0.454, according to data from Cepal, which excludes countries such as Argentina and Venezuela because of the unreliability of their public statistics system in recent years.

It is below the Latin American average, which is 0.466 and is significantly lower than that of countries such as Mexico (0.504), Colombia (0.511) or Brazil (0.539). The only ones that are clearly more egalitarian among those with updated numbers are Uruguay (0,390) and El Salvador (0,399).

Another way to measure inequality is to see directly how much of society’s total income is taken from each part. By that criterion, Chile is even less unequal than with the Gini. On average, the poorest 20 receives 6.3% of the cake in Latin America. In Chile, on the other hand, it receives 7.7% per cent. It is only surpassed by Uruguay (10.3%) and El Salvador (7.8%).

When you calculate inequality as the income gap between the richest 10% and the poorest 10%, Chile also appears as the third least unequal. In Uruguay the upper-tier gains 11.8 times more than the lower tier; in El Salvador, 13.8 times more; and in Chile, 17.6 times more. The Latin American average is 22.5 times and the most unequal country is Brazil, with a difference of 42.8 times.

El presidente chileno Sebastián Piñera se dirige a la nación en Santiago, el 26 de octubre de 2019 (Foto de Pedro Lopez / AFP)
Chilean President Sebastián Piñera addresses the nation in Santiago on October 26, 2019 (Photo by Pedro Lopez / AFP)

Chile is the most unequal country in the region. It has long been installed in Chilean society as one of the great problems of the economic model. The truth is that there were no strong heritage-style policies, no measures to change to a still very regressive tax system.

The data that shows Chile having above-average inequality in Latin America as a portion of the cake of the 10 richest countries. The tip of the Chilean pyramid is left with 37% of the total when the regional average is 36%. It is closer to 42.8% in Brazil than Uruguay’s 29.6%. This is one of the reasons for the discontent that so many people have been expressing on the street in recent weeks, and that binds the base with the centre of the social scale.

“OECD estimates show that it has virtually no improvement in income distribution before and after taxes and money transfers. In the rest of the OECD countries, the change is close to 20 points.

Finland has an inequality equal to or greater than that Chilean before taxes and transfers, but after adding them Chile improves only four points and Finland about 30. Our system is not redistributive, but maintains the huge original inequality,” explained the economist Juan Pablo Valenzuela, a researcher at the University of Chile, consulted by Infobae.

What is noteworthy is not so much how little the lower-middle-class receive but how much are concentrated are the ones at the top.

In fact, Chile has been one of the countries that have reduced poverty the most in recent years. In 2003, the poverty level was 40%. In 2017, last year with data released by Cepal, it was only 10.7%. Only Uruguay has less poverty: just 2.7%. But El Salvador, which is more egalitarian than Chile, has almost four times: 37.8%.

The reason for this apparent paradox is that Chile is a much richer country. Its GDP per capita is USD 15,777, but El Salvador’s is only USD 4,027. When there is more to distribute, even with more inequality, it is possible that everyone’s quality of life is better.

Panama, on the other hand, has a GDP per capita of USD 16,629, but because it is much more inequality than Chile,it has a higher proportion of the poor: 16.7%. The only richest and most equal in the region is Uruguay, which tops the GDP ranking with USD 17,118 per capita.

Un miembro de las fuerzas de seguridad toma a un manifestante durante una protesta contra el gobierno en Providencia (REUTERS/Pablo Sanhueza)
A member of the security forces seizes a protester during a protest against the government in Providence (REUTERS/Pablo Sanhueza)

On the other hand, despite having access to the health system that is considered by some to be unequal—like almost all of Latin American countries—Chile made some surprising progress. By minimizing child mortality and improving health care, it became the longest-lived country in Latin America, along with Costa Rica. On average, Chileans live 80 years.

It is much longer than the Uruguayans (77.7) and the Argentines (76.4). What is remarkable is that in the early 1970s it was well below both countries: their life expectancy was around 63 years, when the others were 68 and 67 years, respectively.

Behind the outburst

The Chilean model was, at least until a few years ago, very successful in ensuring sustained economic growth, drastically reducing poverty and increasing life expectancy, without increasing inequality relative to the Latin American average. But he failed resoundingly to build legitimacy.

“The issue is not so much inequality, but the model of development that Chile has had in recent decades, and that allowed it to grow quite well in the 90s, albeit less since 1998.

It is a way of organizing social life in which almost everything goes through the free market, and where the popular and middle-class sectors live with great uncertainty about what can happen to them if they are unlucky, for example, losing their jobs or getting sick.

Also regarding what will happen to them when they retire and can no longer work, or whether they will be able to repay the credits they take to study at university. If income grows at 5% or more, things seem to work and those fears are not serious, but if it grows at 3% or less, everything changes,” said Javier E. Rodríguez Weber, professor of the Economic and Social History Program at the University of the Republic, Uruguay, in dialogue with Infobae.

Una barricada en llamas bloquea una carretera en Providencia, el 7 de noviembre de 2019 (REUTERS/Henry Romero)
A burning barricade blocks a road in Providencia on November 7, 2019 (REUTERS/Henry Romero)

After many years of growing at high speed, Chile entered a plateau for a few years. Between 2003 and 2013, its GDP per capita multiplied. From USD 4,770 to $15,804, a 231% increase. In contrast, in the last six years, it declined slightly, to end at the current USD 15,777.

The sudden disruption of this cycle of expansion in a population that came from decades of sustained improvements in living standards, with growing expectations of well-being, made inequalities more difficult to tolerate. Above all, the perception that the stagnation of material conditions of existence in the middle and low-class sectors implies an increase in distance with the upper class that does not seem to suffer any kind of stagnation in the standard of living.

“Chile has a social services provision linked to conditions of entry, for which reason, quality services are only for those who have financial resources. The waiting lists in the health system for vulnerable families are years long, the schools for them are of much lower quality and a forecast based on the individual contribution causes the conditions of origin to be reproduced,” Valenzuela said.

In other Latin American countries, there are highly deficient public and free systems, which are usually attended by only low-income people, as the middle and upper classes choose to go to the private sector. In both cases inequality is manifest. But gratuitousness creates an illusion of fairness and inclusion that legitimizes the order. That doesn’t exist in Chile, where differences are much more explicit and untethered, and the majority sentiment is that they are deeply unfair.

Something similar happens in the United States. Only with a crucial difference, it is not economic, but cultural: the primacy of an individualistic ethos, which considers that everyone should fend for himself, without expecting anything from others. This culture of meritocracy does not regard inequality as bad but accepts it as inevitable.

“A key dimension of the problem is the relationship between the level of inequality and the tolerance or aversion to it in society,” Rodriguez Weber said. A country may be more unequal but its members may think that’s not a problem, perhaps because their standard of living improves ostensibly, as happened in Chile in the 90s, or perhaps because they believe it is the result of the different merits and efforts of people, that is, it is fair.

I think the two things have crumbled in 2000 Chile here. Growth has slowed and Chileans have seen that their elite is actually as on almost everywhere: a group privileged by social and political ties or even by corruption, rather than a set of meritorious people.”

Un hombre herido yace en el suelo después de chocar con la policía durante una protesta en Santiago (REUTERS/Jorge Silva)
An injured man lies on the ground after clashing with police during a protest in Santiago (REUTERS/Jorge Silva)

Another reason why chile’s perception of inequity is magnified is a policy that was historically very elitist. Political leaders and senior public officials belong to the sectors of greatest resources. In many cases, to traditional families.

“Material inequality is added to other types of inequalities, such as mistreatment and undermining. In 2017, UNDP published ‘Desiguales’, a study that found that for Chileans the main demand was dignity. This concept has crossed recent mobilizations. In a highly classist and racist country like Chile, the call for humane and fair treatment has sprung up very strongly.

Chile has an inbred elite, which shares the same colleges, universities and positions of economic and political power. That elite split from the vast majority of the population, who see nothing in common with those who have administered the country in the last 46 years,” Cristian Cabalin, professor at the Institute of Communication and Image at the University of Chile, told Infobae Cristian Cabalin.

It is true that Chilean politics had managed to be very stable and have a high degree of institutionalization, but at the price of being too rigid, with little capacity to adapt to social changes. The electoral system inherited from the dictatorship, the binominal, only allowed access to Parliament by members of the two major political coalitions and left out small parties.

Miembros de las fuerzas de seguridad miran una pared pintada que dice
Members of the security forces look at a painted wall that says “No more abuse” during a protest (REUTERS/Jorge Silva)

That changed in 2017, following the adoption of a proportional system that allowed the creation of new political forces, such as the leftist Broad Front, which has 20 deputies in Congress. But that important modification was not enough to contain a discontent that had been cooking for a long time.

On the other hand, the succession of corruption scandals that affected major political parties deepened disenchantment with politics. Despite the claims to the leadership, the bulk of the Chileans had some respect for them for considering it to be relatively honest, something that was not the same in many other countries in the region. But the unpleasant revelations of recent years buried that feeling.

“Inequality as a trigger for mobilizations must be added to a growing smear of institutions due to cases of corruption, embezzlement and abuse,” Cabalin continued. In recent years, Chile experienced a gradual deterioration of the institutions that must represent the interests of the population. Cases of irregular policy financing were discovered by economic groups, embezzlement in military and police institutions, and sexual and power abuse in the Catholic Church. All institutions lost credibility in the population.”

Un manifestante utiliza una señal de alto como protección mientras otro lanza piedras durante una protesta contra el gobierno el 29 de octubre de 2019 (REUTERS/Jorge Silva/File Photo)
One demonstrator uses a stop sign for protection while another throws stones during a protest against the government on October 29, 2019 (REUTERS/Jorge Silva/File Photo)

The unrest and anger built up for a long time and could not be channelled through the political system. For this reason, it ended up manifesting itself in the form of an outburst after the Santiago metro fare rises on October 6.

Radicalized sectors set fire to several stations on the network and carried out looting, but hundreds of thousands of people flooded the streets to peacefully protest against a social order they consider unfair. The decision of the government of Sebastián Piñera to declare the State of Emergency, with curfews and surrendering security to the military, further reinforced outrage with the political class.

“Inequality was a backdrop to the outburst, but accompanied by other aspects as important as that. The accumulation of abuses, tax frauds and collusion of commodity companies. Impunity or low penalties for its authors, and the links between the business world and the political world, which further lost the prestige of politics. The frauds of the highest authorities of the Army and the Police. The physical and world-long remoteness of life of the technocratic government elites from the middle and lower class sectors, particularly in today’s government,” said González Meyer.

The clearest evidence is that the main demand is constitutional reform. It is unclear what the new Constitution should look like—the current one was drafted during Pinochet’s dictatorship—and there is likely to be no agreement among the multiplicity of actors who were mobilizing. But what everyone agrees on is the need for a recasting of the country on new foundations.


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